Alissa Tabirian
NS&D Monitor
8/28/2015
BWX Technologies’ (BWXT) Technical Services Group (TSG) intends to win back contracts and grow its business in the wake of Department of Energy (DOE) contract losses that cut millions from its second-quarter 2015 revenue, Bill Fox, BWXT’s president of technical services and nuclear energy, said in an interview with NS&D Monitor.
The former Babcock & Wilcox company, now known as the nuclear-focused BWXT, spun off its power generation business as of July 1, creating two separate entities. Analysts and customers believe the split is “a good thing,” Fox said. “We have a strong business portfolio that we’re taking with us [and] we split on good terms from a business perspective.” The next step, he said, is to focus on growth opportunities beyond the “relatively stable, very long-term” work the company conducts for the DOE.
The TSG is in charge of management and operation contracts in the nuclear enterprise, including at the Nevada National Security Site (NNSS), Lawrence Livermore National Laboratory (LLNL), and Los Alamos National Laboratory (LANL), where it works in teams that also include AECOM, Northrop Grumman, Bechtel, CH2M Hill, and the University of California. Management said in an earnings call earlier this month that BWXT’s $357.1 million in second-quarter 2015 revenue was down 1.5 percent from the second quarter of 2014, while TSG’s revenue fell by $4.4 million. TSG’s operating income also fell to $5.5 million in the quarter, a $9.6 million decrease the company attributed primarily to “the loss of the Y-12 National Security Complex and Pantex Plant contracts.” Consolidated Nuclear Security (CNS), a team of contractors, took over management of those sites last year.
“That was a hit to us,” Fox said of the loss. “I think we’re recovering. We’ve had some very good discussions with the [DOE] on what happened, how it happened.” Fox said the company will be “looking to do some advanced homework” to try to win back management of Y-12 and Pantex once the current CNS contract expires. The base term is set to expire in June 2019, after which optional extensions could be awarded.
Most recently, BWXT lost a management and operation bid for the National Security Campus in Kansas City to incumbent contractor Honeywell. Fox confirmed the company was debriefed by the DOE and does not intend to protest the decision. “We know what happened, we know why, and I think we also learned that we do have a lot to offer,” he said. “I’m pretty proud of that bid . . . and I believe we gave a run for the money but we understand what we’ve got to do differently.”
Despite recent losses, Fox believes BWXT will “get prime seats at the table” for future contract bids, including for Sandia National Laboratories (SNL), LANL, and NNSS.
The Federal-Contractor Relationship
The federal-contractor relationship has changed, according to Fox, as the DOE moves “a little bit closer to the way commercial people execute. They’re looking for a return and they’re looking for shared risks between owner and contractor.” However, some federal contract terms, specifically the clawback clauses allowing DOE to alter funding based on performance assessments after awarding the fee, are “contractor-onerous,” Fox said. “We’re not going to go into business without the opportunity to make fee upon good execution,” he said, adding that sometimes the clawback is “so subjective there’s not a real chance to fight it.”
Fox said BWXT is actively addressing industry concerns regarding an aging nuclear enterprise knowledge base through initiatives involving the “cross-pollination of people, talent, and knowledge.” One such initiative for knowledge transfer is “a very aggressive employee rotation” between labs, on all TSG projects, and within the company’s other federal and commercial units, that involves “employees at all levels of employment, from individual contributors to middle and senior management.” The employees serve terms that span from one or two years to several years in positions with similar responsibilities.
Upcoming Contract Bids
Fox confirmed BWXT is “highly interested” in bidding for the SNL contract and would consider a public-private partnership with universities, similar to its partnership with the University of California at LANL and LLNL. “I think all doors are open, but at the same time these projects are huge,” he said, emphasizing BWXT’s potential role in a consortium. “I don’t think one company has the entire set of skills that’s required to lead a management and operation contract at a major DOE site.” Teams are currently in the process of being formed, Fox said. “We’re on a team right now and we’re evaluating that position as well.”
For now, Fox is more concerned with retaining the contract at NNSS, which is currently managed by a team that includes BWXT. “The first piece of winning new work is re-winning the current projects you have,” he said. “We want to make sure we recapture that piece of work.” The contract expires in September 2016.
TSG’s pursuit of growth includes international opportunities. “A few months ago, we were executing 14 contracts on 19 sites in DOE space,” including with the NNSA, Office of Environmental Management, and other divisions, Fox said. Now, BWXT is considering international partnerships, much like its previous work managing a nuclear reactor site in Canada. The company also announced this month that one of its subsidiaries has been awarded design and manufacturing contracts for a nuclear plant in China.
On the future of BWXT, Fox noted the company split was not intended as a step toward acquisition by another entity. “We have no intentions of selling the company,” he said, leaving open the possibility to consider offers or merge with or acquire another company. “We’re not saying we’re going to do it, we’re not saying we have targets today, but as always businesses that are looking to grow look at capitalizing on synergies.”
In the meantime, Fox emphasized, business development “is really a backdrop . . . behind excellent execution on the current contracts.”
“That’s our bread and butter,” Fox said. “That is the highest priority TSG has right now.”
